ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Audit Characteristics and Asset Impairment Recognition

  • Choi Sumi Chungnam National University

Asian Tax Journal Vol. 20 No. 6 (2019), pp. 115-135

Abstract

This paper is to verify whether there is a difference in the recognition of an asset impairments depending on the audit characteristics. An empirical analysis was conducted on local listed companies from 2011 to 2018 on whether their recognition of impairment losses on assets differed depending on the audit characteristics. As a result of verifying that the recognition of an asset impairment varies depending on the characteristics of the auditor, it is statistically significant that an entity will recognize an asset impairments when it changes from non－Big4 to Big4 as a result. Validation of whether the recognition of impairments by assets is affected by the characteristics of the auditor indicates that, for goodwill impairments, it is highly probable that the non－Big4 auditor recognizes goodwill impairments. For impairments on property, plant and equipment, for entities that are highly probable of positive earnings’ management, the recognition was highly probable for those entities audited by Big4. That means high audit quality affect the recognition of tangible asset impairments. The inventory impairments are likely to be recognized for entities audited by non－Big4. In summary, there is a high probability of recognizing asset impairments when the quality of the audit is high, and for an entity with positive earnings management, it was less likely to recognize an asset impairments. In the case of high audit quality, management’s discretion in the recognition of impairment of assets is limited and that audit quality contributes to the proper reporting of the asset’s carrying amount and the cost.

Keywords

  • auditor’s characteristics
  • asset impairment
  • earnings management

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